Michael D. Dalzell
Senior Editor

With PPO enrollment nearing 100 million, HMOs are getting a healthy dose of competition. Is the PPO here to stay — or just a temporary distraction?

Michael D. Dalzell

Senior Editor

A few items from the news in July:

  • In St. Louis, members of United HealthCare of the Midwest and Mercy Health Plans learned that their copayments for preferred drugs would go from $12 to $20. The culprit? High pharmacy costs.
  • For the same reason, Massachusetts-based Tufts Health Plan sought state permission to raise copayments for some Medicare members from the current $8 for generics and $15 for brands.
  • A study of Quebec's 1996 decision to increase annual pharmacy copayment limits for the poor and elderly from $100 to $750 tied it to a steep boost in rates of illness and hospitalization — the result of fewer people filling their prescriptions.

The debate over the effects of rising copayments will intensify in the coming months, as health plans and employers try to dodge double-digit drug-price inflation and pass on more cost to users. While higher copayments can reduce pharmacy utilization — many pharmacy benefit managers can link the two with reasonable accuracy — the hypothesis that higher copayments encourage appropriate utilization is speculative; there are plenty of anecdotes, but there is far less in the way of scientific evidence. Arbitrary decisions about copayment levels can backfire when superimposed on the complexity of noncompliance and the unpredictability of physicians' prescribing patterns.

As a cost-sharing device, the pharmacy copayment is on trial. As higher copayments and three-tiered structures spread, the effects on utilization, compliance, and outcomes will be picked over like a truckload of produce. If higher copayments fail to curb pharmaceutical expenses or force higher medical costs because of lesser compliance with mission-critical drugs, the next phase in cost control may be (1) basing copayments on something other than only a drug's price, (2) shifting back to flat-percentage coinsurance, or (3) in the extreme, the end of the pharmacy benefit altogether.

Up, up, and away

You don't need to be a mathematician to understand what's driving higher pharmacy copayments and the proliferation of triple-copayment structures. While HMOs' premium increases were moribund, per-member, per-month drug expenditures jumped from $11.63 in 1995 to $15.57 in 1997. Something had to give, and that something was the member's contribution. After creeping up about 4 percent each year from 1993 to 1996, the average copayment for brand-name drugs in 1997 vaulted 18 percent — $1.37 — to $8.96.

"It's not uncommon to see medication therapies cost $2 to $3 a day," says Nicholas Page, Pharm.D., a clinical pharmacist with Ohio Health Group, a Columbus-based physician-hospital organization and health plan. "Our plan offers 90-day supplies of maintenance medications. The total for some of these prescriptions can be $300 to $500, while the patient's copayment may be as low as $30."

At about the time copayments started to jump, health plans were also beginning to embrace three-tiered structures as a cost-containment strategy. It was a good PR move, too, because they weren't saying no to members wanting "nonpreferred" drugs, usually some of the most expensive new agents; it simply meant that members would have to decide how much the top-shelf medications were worth.

"You want copays to have enough of a difference to capture people's attention," says Carol McCall, vice president for pharmacy management at Humana. Studies suggest that a $7 differential turns heads, she says, but "$10 is better if you're going to try to get the member more involved in the choice."

James Bonnette, M.D., chief medical officer for North Carolina-based ProMedex, which runs disease management programs, pins down the cost-utilization equation. In his pre-DM days, Bonnette worked at a PBM. "We looked at going from a $3 to a $10 copay," he recalls. "In terms of utilization changes, it was in the 20-percent range."

When the copayment goes over $10, he says, dramatic changes ensue. "If maintenance medications wind up at $25-plus — which is where a lot are heading — you see 50-percent drops in adherence after two or three months. Most of these folks are on more than one medication. They spend a significant amount per month, and pretty soon, that drives utilization down."

That concerns David Gross, AARP's senior policy adviser, particularly when patients with low incomes are advised that a high-copayment drug is, medically, the most appropriate choice. "There should always be a mechanism for the doctor to say, 'No, no, this patient needs this drug. Give it to him at a lower copayment.'"

But high copayments don't necessarily stop people from taking medications. Generally, says Bonnette, patients switch to those with lower copayments — which is a relief to employers, few of which request copayments above $25. "It comes down to a balancing act," says Edward Kaplan, vice president for the Segal Co.'s National Health Care Practice. "If we make it so prohibitive, it's not a matter of cost-effectiveness, but of quality. Employers are very leery of that."

What goes where?

Merck-Medco Managed Care, the PBM, estimates that a three-tier copayment program shaves 5 to 9 percent off pharmacy expenses. Exactly where the savings fall, though, depends on the degree of formulary restriction. What shows up on the third tier can have far-reaching implications for pharmacy and medical costs.

A simple assumption would be that "lifestyle" drugs are third-tier candidates, while medications for chronic conditions would go on lower levels. But 70 percent of prescription drugs are for chronic illnesses, and because there are multiple agents in most therapeutic classes, differentiation is needed.

Rebates and discounts play a big role. Humana considers what it calls the "net net" cost of a drug — factoring in all possible discounts for therapeutically equivalent agents. "If there are five drugs in a class, and most of those are 'me-too' drugs, I might pick two of them, get better pricing, and so those become my preferreds," says McCall. "You set the other three at higher copayment levels."

But while the costs of drugs is important, compliance issues transform decision making from an actuarial affair to an art. "With some drugs, compliance is really important," says McCall. "Asthma inhalers are a good example. If you don't comply, you might wind up in the ER." And so those tend to end up on the lower tiers in Humana's plans.

When applied prudently, low copayments — or no copayments — can improve a health system's finances. In Temple, Texas, Scott & White Hospital and Clinic, in conjunction with Scott & White Health Plan, tried a pilot program waiving pharmacy copayments for asthmatic children and giving away meds to those without coverage. "The overall cost of treating children's asthma came down a fair amount," says Michael Weir, M.D., professor of pediatrics at S&W Hospital.

But hold your conclusions; though total expenses declined, there was little change in cost for the subset receiving free medications. "Asthma patients are expensive for a while, then they're not, and then somebody else is expensive," Weir explains. "We may have taken patients who were going to be expensive and kept them from stepping into an expensive group. Did we do something? Yes, but it's hard to say exactly what."

Still, for certain drugs, says Bonnette, raising copayments can reduce costs without harming patients. "One example is nonsedating antihistamines. I don't think they benefit patients much, and they are an exorbitant cost to the plan. I can't think of a reason in the world not to make nonsedating antihistamines 50-percent copays."

But Kaplan can. "Some studies show a direct relationship between sedating antihistamines and productivity and absenteeism," says Kaplan, whose clients include large employers and governments. Further, he adds, a less-expensive medication may be wasted expenditure if, thanks to untoward side effects, people won't use it.

Kaplan thinks newer antiulcerants belong in lower tiers, too. "Some are so effective, you don't take long-term maintenance drugs. Here's a case where expensive medications are cost-effective."

One class meeting stiff resistance from formulary managers is Cox-2 inhibitors. "We don't want everyone jumping on the bandwagon just because they're the hottest thing," says Michael Barberi, senior vice president for Merck-Medco.

To encourage appropriate use of new medications, he says, Merck-Medco builds in red flags. "We might say, 'If you're over 65, have been on a nonsteroidal anti-inflammatory and an antiulcer medication, and you're prescribed a Cox-2, OK.' In those situations, it's a pretty safe bet there's a strong medical necessity." Otherwise, he says, "We'll ask, 'Have you tried other things that could work?'"

Bonnette thinks that such methodical approaches are lost on many health plans, which often worry that inappropriate use of a drug will preclude its high price being offset by lower medical costs.

"What plans see is, 'I don't know if this will save money, because I don't know if it's going to be written for the right people.'" Because of this, Bonnette predicts Cox-2s will remain third-tier indefinitely.

"I see people saying, 'This belongs in the third tier because it's expensive, and this belongs in the lower tier because it's not.' My concern is that there needs to be a rational medical decision about how you drive utilization of a specific class, not just what the drug costs."

Red herring

A 30-day supply of a certain popular antihistamine costs $87 retail, according to congressional testimony in July. Is $25 unfair?

Barberi puts it this way: When indemnity plans were the predominant vehicle for prescription coverage, patients pulled about 30 percent of pharmacy costs. "Today, in a typical 10/5 plan, it's 18-percent cost share for retail, 7 percent for mail service," says Barberi. So, as boosting copayments goes, "You'd have to get pretty Draconian to get to where somebody is discouraged from getting a prescription."

Weaning people from low copayments may be difficult. McCall cites a Milliman & Robertson study where drug use fell 7 percent when copayments went from zero to $1. "The biggest drop was if it had to come out of pocket at all," she says. Similarly, McCall has seen data that suggest that increasing zero-copays for prescriptions and office visits to $8 and $15 to $20 respectively cuts drug utilization in half.

Barberi suggests that higher office-visit copayments, as a way to discourage inappropriate pharmacy use, are worth a long look because some visits to the doctor may be unnecessary.

"Consultants say that 85 to 90 percent of the time, when people go to a physician's office, they walk out with a prescription," he says. "Often, physicians are compelled to write a prescription, because it's evidence that a service was rendered."

Even if the prescription was unnecessary?

"Physicians say one of their biggest fears is loss of patients," he says. "They want to satisfy them."

Bonnette would believe it. "Most physician prescribing is by whim, not rationality. Physicians get used to writing one thing, or they just like a product or a company, and they write it for no good reason."

In an audit Bonnette did for a large HMO, just 18 percent of people prescribed selective serotonin reuptake inhibitors had been diagnosed with depression. "For legitimate reasons," he says, "HMOs have concerns about what physicians will do if something is added to the formulary."

But Page, at Ohio Health Group, worries that boosting copayments for doctor visits will discourage patients from seeking needed medical attention. A better idea, he suggests, may be to motivate patients by pegging drug copayments to compliance.

Say a patient takes a hypertension medication once a week. "Is that patient receiving any long-term benefit from that drug? Are we doing anything to prevent blindness, kidney failure, or heart disease, which uncontrolled hypertension can lead to? No. So then why should the health plan incur the cost of that therapy, when its benefit is zero?"

ProMedex plans to begin using financial incentives to encourage compliance in some of its disease management programs. "If you take your medicine and you're compliant throughout the year, then at the end of the year we'll send you a rebate for copayments for specific medications," Bonnette says.

One idea with potential, he says, is to put low first-month copayments on some drugs, with refills costing more. "It gives an incentive to a patient to get the physician to figure out what's wrong, rather than just leaving a patient on an expensive drug."

Another alternative is to cover over-the-counter drugs. Page says there's a perception that prescription medications are better than other products, but a health plan's blessing might change that.

"It would be more cost-effective for a plan to pay $3 for an over-the-counter product than $60 for a prescription drug," he says, adding there's substantial data to suggest that many prescription products are no more effective than over-the-counter drugs.

Kaplan suggests swapping copayments for coinsurance: "In no other benefit do you have such a simple design for such a wide array of products. There's little ability to manage cost." Kaplan has designed a coinsurance plan where acute and maintenance drugs are 90-percent covered if generic, 80 percent for brands. Wellness drugs are covered on a 70/50 basis. "I've modeled it against the typical 10/5 plan, and it saves a significant amount," he says.

Whatever the future, the status quo is likely to go. If the goal, says Page, is to provide a pharmacy benefit for all Americans, then finding the most appropriate way to manage it becomes imperative. "If we stay on the system we're on now, it will soon be more than the health care system can afford. And the entire benefit may just go away."

The intricate relationship between costs and compliance

There is evidence to suggest that arbitrary limits on access to medications can bite back. Two New England Journal of Medicine studies of New Hampshire's now-abandoned effort to limit Medicaid recipients to three prescriptions a month found that (1) drug expenses fell 35 percent, but overall health care costs rose, and (2) a $47-a-year savings for each schizophrenia patient was eclipsed by a $1,530 per-patient increase in use of other health care services.

Last month, a University of Arizona study found that 16 percent of Arizonans whose drug benefits run out let prescriptions go unfilled until the next plan year.

Whether high copayments constitute a barrier to compliance with medication regimens is not well documented. But the expense of noncompliance is: Medication misuse contributes $76 billion a year to health care expenses — 7 percent of total U.S. health care expenses in 1997 and very near the $79 million spent on prescription drugs, according to the the Health Care Financing Administration.

Noncompliance is a tricky subject — medication costs aren't nearly the biggest reason people don't "take as directed." A 1995 Journal of Managed Care Pharmacy study of "abandoned prescriptions" found that the largest segment — 31 percent — didn't know why they failed to pick up a prescription at the pharmacy. The next common factor, "physician was hard to understand," was cited by 13 percent. Only 2 percent couldn't afford the copayment.

But that 2-percent share may rise, if what is happening at pharmacies occurs frequently enough to become a barrier to care. Edward Kaplan, senior vice president for the Segal Co. benefits consulting organization, says that where plans permit pharmacies to dispense up to a 30-day supply, he typically used to see an average of 24 days' worth sold. "I don't know if it's haphazard, or a supply issue, or if pharmacies are playing games," says Kaplan, "but now some have gone to a 19- or 20-day supply. If you compound that over months and thousands of members, you get one more dispensing fee every so often, one more copayment."

Contributing factors

Nicholas Page, Pharm.D., clinical pharmacist for Ohio Health Group, says high copayments contribute to several aspects of noncompliance. "I've seen patients prescribed nonpreferred products, and because of how busy pharmacies are, the pharmacist isn't willing or is unable to call the physician to try to get the prescription changed. But the patient has already seen the doctor, isn't going to go back for another prescription, and because the drug costs more than he wants to pay, he walks out of the pharmacy without the medication.

"Many older people try to split tablets to make them last longer," he continues, "so they don't have to pay the copay as frequently."

Another consideration, he says, is patients' ambivalence about therapy, for which he blames physicians and pharmacists. "Patients don't understand the importance of taking their medications and the goals of their therapy. If it's difficult for patients to see the benefit in taking a medication, then as copayments escalate, that combination can cause a lot of problems."

Mark Vanelli, M.D., M.B.A., psychiatry instructor at Harvard Medical School and chief medical officer for Adheris, a health care company that uses information technology to improve medication adherence, notes that physicians tend to focus on what's scientifically and medically interesting — and compliance doesn't fit that bill.

"We're trained to make diagnoses and be high-powered," he says, "while compliance is part of the psychology of everyday life. It is a life-and-death issue, literally, but one without excitement."

Many physicians feel they don't have much control over compliance, but Vanelli thinks that's a cop-out. "I'd say we haven't invested the time in educational programs that can improve behavior."

Not all is lost

But, he says, that's possible to do. Adherence rates for the antipsychotic Clozaril are almost 25 percent higher at six months than for the newer antipsychotics, which are touted as having better side-effect profiles." Patients taking the drug, he says, are required to undergo frequent blood testing to ensure safe administration. "Patients need between four and eight provider contacts a month. This may work as a built-in compliance program," he says.

"My guess is that with time, adherence, and the customer service that contributes to it, will matter to some patients and payers. But at present, that's far from the case."

Which is why, although better compliance could save the system more than it would save through higher pharmacy copayments, health plans take the easy way out. "When you make benefit-structure changes like this, you can implement them quickly and see changes quickly," says James Bonnette, M.D., chief medical officer for ProMedex, a disease management company. "They don't want something that takes forever to do."

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